For my second purchase today I bought shares of Chevron (CVX), one of the largest integrated oil and gas companies in the world. My only previous purchase of CVX occurred nearly two years ago (November 23, 2011) and I have been wanting to increase my position for some time.
I think CVX is moderately undervalued at the current price. It has a P/E of 9.8 (vs. a 5-year historical average of 9.3), P/S of 1.1 (vs. 0.8), P/B of 1.6 (vs. 1.7), and dividend yield of 3.35% (vs. 3.2%). Using a Dividend Discount Model with a dividend growth rate of 8.5% (slightly lower than recent dividend increases) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $129.70. Morningstar gives a fair value of $130.00 and a 4-star rating. The average of those two estimates is $129.85, which implies an 8% margin of safety at my purchase price.
I bought 20 shares of CVX at the price of $119.54 per share plus commission, giving me a 3.34% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $20.00 from this purchase, which will add a total of $80.00 to my annual dividend income. The stock happens to go ex-dividend tomorrow, so the first dividends from this purchase will be paid in less than a month. This purchase was made in my taxable account using accumulated dividends and $2,275 of new capital. I now have a total of 40 shares of CVX and I will receive combined quarterly dividends of $40.00. My forward 12-month dividend total increases to $3,111. Chevron is now the fourth-largest position in my portfolio (3.7% weight).
As mentioned in a recent post, I plan to use the rollover money in my Roth IRA to make two purchases per month. After buying shares of KMI earlier today, that leaves one more purchase for November. The next purchase for my taxable account will not be until December.